New state employees to lose retirement health coverage starting Jan. 1

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State employees hired as of Jan. 1 will no longer have health coverage from North Carolina after they retire.

The change, written into the state’s budget in 2017, will eliminate the extended health benefit for new state employees, making them more comparable to the private sector.

The new policy will not impact current employees. Still, Suzanne Beasley of the State Employees Association of North Carolina (SEANC) said it could make it more difficult to recruit new workers, including teachers, public safety and agency employees. Beasley said, however, the bigger issue is that the state plan lacked spending safeguards.

“North Carolina is paying for health care, and it has no price tag on it,” said Beasley, SEANC’s director of government relations. “They’re just getting a bill and paying it.”

Joe Coletti, a senior fellow at the John Locke Foundation, said the change might be necessary to help the state with the health plan’s $27 billion in unfunded liabilities. But, he added, the state might not see a savings from the new policy until about 30 years.

“It’s the best of a lot of bad options that the Legislature and the treasurer have to deal with the large cost [and] expenses looming in the future,” Coletti said.

Folwell said the health plan’s insolvency stems from a gap in the system’s inputs. Unlike the state’s pension plan, which has been upheld by employees’ and employer’s contributions and investments, “virtually no money had been set aside for the last 40 years to pay for people to be eligible for lifetime health care,” he said.

“The amount of our liability exceeds one year’s state budget that runs the whole state and health plan,” Folwell said.

The state has reduced the plan’s liability by $4 billion because of savings from recent negotiations with the system’s Medicare Advantage plans. The Medicare Advantage contract added another $475.2 million to the health plan, Folwell said in July.

The treasurer’s office has also tried to find savings by implementing initiatives to improve state employees’ health outcomes and offset premiums.

Beasley said benefit loss could have been avoided if the state had previously implemented pricing transparency policies like Folwell’s Clear Pricing Project. The project converted the State Health Plan from a commercial-based to a reference-based plan, which sets caps on how much the state would pay a provider. As of August, more than 25,000 providers have signed on to the network that was activated in January.

“It’s still up and running, but that would have had an immediate impact of $63 million in the first year, $182 million in the second year of the biennium, so by the third year – $241 million, so we’d have $486 million in immediate impact,” Beasley said.

The Federal Reserve estimates the long-term liability nationwide for providing health care coverage for retired public workers is more than $1 trillion. North Carolina’s State Health Plan covers 243,884 retired employees, the state treasurer’s office said. The retirement health plan costs the state $405.75 per employee, officials said.

“From an individual employee perspective, if you’re going to start working for state government, you lose out, but compared to just about every other job, nobody else has any retiree health benefits,” Coletti said. “So, this brings future state employees in line with the rest of the country [and] with the rest of the state.”

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